Service industries in U.S. expand at fastest pace in a year

Service industries in the U.S. expanded in February at the fastest pace in a year, indicating executives of the biggest part of the economy were looking beyond the division in Washington over the nation’s budget.

The Institute for Supply Management’s non-manufacturing index increased to 56 last month from 55.2 in January, the Tempe, Arizona-based group said today. Economists projected the gauge would be little changed at 55, according to the Bloomberg survey median. Readings above 50 signal expansion.

A pickup in the housing market that’s driving sales at companies such as Hovnanian Enterprises Inc., along with sustained consumer purchases, is supporting the service industries that make up almost 90% of the economy. The figures follow a report last week that showed the fastest pace of manufacturing since June 2011, indicating the expansion may be broadening.

“Business spending and investment continues to trend fairly strong despite some apparent consumer income pullbacks,” Guy Lebas, the chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “It’s a much more stable outlook.”

Stocks extended gains after the report, with the Standard & Poor’s 500 Index climbing 0.9% to 1,539.59 at 10:29 a.m. in New York.

Estimates in the Bloomberg survey of 73 economists ranged from 50 to 56.3. The index, which includes industries ranging from utilities and retail to health care, housing and finance, has averaged 53.6 since the recession ended in June 2009, before today’s report.

By Industry

Thirteen non-manufacturing industries, including real estate, transportation, retail trade and finance, reported growth in February, while five said business contracted.

The ISM’s employment gauge was little changed at 57.2 after an almost seven-year high of 57.5 the prior month, today’s report showed. The measure of new orders increased to 58.2 from 54.4. The gauge of business activity advanced to 56.9 from 56.4.

The reading today compares with tempered services growth in the world’s second-biggest economy. China’s services industries expanded in February at the slowest pace since September as a gauge of new orders declined. The non-manufacturing Purchasing Managers’ Index fell to 54.5 from 56.2 the prior month, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said on March 2.

Service industries in the U.S. may be benefiting from a rebound in manufacturing. The Institute for Supply Management’s factory gauge rose to 54.2, the highest reading since June 2011, the group reported last week.